Small-cap stocks tend to offer investors greater growth opportunities than large-cap alternatives, although this comes with its fair share of added risk. Are you looking for small-caps? Company liquidity is an important consideration in any stock analysis. Liquidity gives a company the ability to make big acquisitions if it sees investment opportunities, a cushion for future lulls in demand, and most importantly, it keeps a company's doors open. Are these the types of stocks that you're looking for? Do you prefer companies with high liquidity? Looking for ways to dig deeper into a company's profitability? If so, here's a list you might be interested in.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio, because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time, this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
We first looked for small cap stocks. We then screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then screened for businesses with strong profit margins (1-year operating margin>15%)(ROE [TTM]>30%). We did not screen out any sectors.
Do you think these small-cap stocks are worth more than the market currently says? Please use our list to assist with your own analysis.
1) C&J Energy Services, Inc. (CJES)
|Industry:||Oil & Gas Equipment & Services|
C&J Energy Services, Inc. has a Current Ratio of 2.83 and Quick Ratio of 2.26 and Operating Profit Margin of 33.57% and Return on Equity of 64.21%. The short interest was - as of 04/28/2012. C&J Energy Services, Inc., through its subsidiaries, provides hydraulic fracturing, coiled tubing, and pressure pumping services to oil and natural gas exploration and production companies. The company offers hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability; coiled tubing services to perform various functions associated with well-servicing operations and to facilitate completion of horizontal wells; and pressure pumping services, which include well injection, cased-hole testing, workover pumping, mud displacement, wireline pumpdowns, and pumping-down coiled tubing. It also constructs and sells oilfield equipment comprising hydraulic fracturing pumps, coiled tubing units, pressure pumping units, and other equipment for third-party customers in the energy services industry; and provides equipment repair services, and oilfield parts and supplies.
2) Gold Resource Corp (GORO)
Gold Resource Corp has a Current Ratio of 2.97 and Quick Ratio of 2.83 and Operating Profit Margin of 43.43% and Return on Equity of 85.30%. The short interest was 13.39% as of 04/28/2012. Gold Resource Corporation, an exploration stage company, engages in the exploration for and production of gold and silver in Mexico. It also explores copper, lead, and zinc ores. The company holds a 100% interest in 6 properties, including the El Aguila Project, the El Rey property, the Las Margaritas property, the Solaga property, the Alta Gracia property, and the El Chamizo property located in southern State of Oaxaca.
3) Computer Programs & Systems Inc. (CPSI)
|Industry:||Healthcare Information Services|
Computer Programs & Systems Inc. has a Current Ratio of 3.25 and Quick Ratio of 3.14 and Operating Profit Margin of 23.80% and Return on Equity of 49.75%. The short interest was 4.90% as of 04/28/2012. Computer Programs and Systems, Inc., a healthcare information technology company, designs, develops, markets, installs, and supports computerized information technology systems to small and midsize hospitals in the United States. Its enterprise-wide system automates the management of clinical and financial data across the primary functional areas of a hospital. The company offers services that enable customers to outsource certain data-related business processes in the areas of clinical care, revenue cycle management, cost control, and regulatory compliance.
4) Akorn, Inc. (AKRX)
|Industry:||Drugs - Generic|
Akorn, Inc. has a Current Ratio of 5.51 and Quick Ratio of 4.26 and Operating Profit Margin of 24.30% and Return on Equity of 35.12%. The short interest was 15.99% as of 04/28/2012. Akorn, Inc. engages in the manufacture and marketing of diagnostic and therapeutic ophthalmic pharmaceuticals products, niche hospital drugs, and injectable pharmaceuticals in the United States and internationally. It offers products in various specialty areas, including ophthalmology, antidotes, anti-infectives, pain management, anesthesia, and vaccines. The company's Ophthalmic segment markets diagnostic products, including mydriatics and cycloplegics, anesthetics, topical stains, gonioscopic solutions, angiography dyes, and others primarily for use in the office setting.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.